KUALA LUMPUR (Reuters) - Malaysia's Khazanah Nasional will likely cut stakes in some top state-linked firms as the government overhauls the sovereign wealth fund's investment strategy, after revamping its board last week, to boost transparency and slash national debt.

The performance of the $39 billion (29.7 billion pounds) fund has been muted, but backed by past governments, its investments have spread across various sectors globally, with one of the highlights being its profitable stake in Alibaba bought before the e-commerce giant's blockbuster IPO in 2014.

New Prime Minister Mahathir Mohamad is keen to make the fund leaner and use sale proceeds to cut massive debt piled up in a multi-billion dollar scandal at state fund 1Malaysia Development Berhad (1MDB), banking and financial industry sources said.

Khazanah will likely trim stakes in CIMB Group Holdings, chaired by the brother of former Premier Najib Razak, regional telecoms firm Axiata Group and restructure struggling Telekom Malaysia in the coming months, the sources told Reuters.

It could also review its stake in IHH Healthcare, which has grown into one of the world's biggest healthcare service providers with a $12 billion market value, they added.

IHH has been in news recently for its winning $1.1 billion bid to takeover India's Fortis.

"In the current climate, Khazanah is bound to be smaller," said a banker, who also noted that property projects in the southern Malaysian region of Iskandar and overseas infrastructure deals were ripe for sales.

Malaysia is saddled with over 1 trillion ringgit ($246 billion) in debt, swelled by liabilities tied to 1MDB, the scandal over which led to the ouster of Najib's government and the return of 93-year-old strongman Mahathir, who has begun a swift corporate clean-up.

Sources said other options the government could consider for Khazanah include partial stake sales in regulated state-linked firms as these have crowded out the private sector. Overseas investments could also be trimmed.

"Strategic sell-downs are going to be part of the rationalisation drive by this government," said a corporate lawyer familiar with the government's approach.

Khazanah and the Prime Minister's office did not reply to emails from Reuters seeking comment for this story.

Khazanah has stakes in more than 100 companies such as India's Infosys Technologies, NYSE-listed e-commerce firm SEA Ltd and has shaped up homegrown firms including IHH and lender CIMB into regional champions.

"Khazanah has become an asset accumulator and builder - a separate force in its own right, which Mahathir seems to perceive as diluting the government's influence," said Munir Abdul Aziz, partner at law firm Wong & Partners.

Mahathir sees the resignation of Khazanah's management as a restructuring opportunity for a fund he said has deviated from its goal to help Malaysia's ethnic majority, the bumiputera or "sons of the soil".

The fund deviated by divesting shares in strategic assets, Economic affairs minister Mohamed Azmin Ali, a new director of the fund, told parliament on Wednesday, enumerating failed investments it had written off.

The realisable asset value of Khazanah's portfolio climbed 29.4 percent to 157.2 billion ringgit in 2017 from 121.5 billion ringgit in 2012, while the portfolio value of Singapore's Temasek rose 43.2 percent to S$308 billion ($226 billion) in the five years to March 2018.

Mahathir took over as chairman of Khazanah this week, after Managing Director Azman Mokhtar resigned. The entire board offered to quit last week.

Sources say EPF CEO Shahril Ridza Ridzuan is the top pick to replace Azman. EPF did not reply to requests for comment.

DIFFERENT VISION

Azman took charge of Khazanah in 2004, and modelled the fund on the lines of Temasek, boosting corporate governance at public sector monopolies and driving big restructuring at some firms.

The fund also invested in real estate projects, technology and logistics sectors, while opening worldwide offices. Under Azman, its offshore investments grew to represent about 44.5 percent of its realisable asset value by geographical exposure.

While there have been revelations that funds from deals with Khazanah were used by the previous government to meet 1MDB's liabilities, Khazanah has said it had no control over the utilisation of those funds.

Some experts continue to see Khazanah as a vehicle for investments in emerging sectors, especially overseas.

"Its role in the economy is to venture into new areas which the private sector would not," said political economy professor Edmund Terence Gomez. "Mahathir has made it very clear that he wants to link Khazanah to his bumiputera agenda. I think that was not what Khazanah was set up for."